Market Gains Amid Resurgence of Corporate Activity and Deal-Making
European and US equity markets posted gains in July, with the EuroStoxx 50® Total Return advancing 0.43% and the S&P 500® Total Return climbing 2.24%. Market volatility was subdued: the VStoxx® volatility index declined to 17.5% at month-end, while the iTraxx Crossover® (S43) tightened from 283 to 268bps.
Convertible Bond Arbitrage
Primary market activity was absent for European convertibles, and secondary trading remained muted, exhibiting a slight general bias toward selling. US convertible bond arbitrage saw minimal action, with five-year yields moving up slightly from 3.79% to 3.97% and HY CDX spreads edging wider from 318bps to 323bps. Looking ahead, we anticipate increased activity in August, driven by a robust corporate earnings calendar and potential new issuance.
Volatility Trading
At June's close, 30-day implied volatility levels stood at 24.70 for the US (VIX®) and 17.67 for Europe (VStoxx®), while realised volatility over the month was significantly lower: 6.69 and 13.27, respectively.
During July, implied volatilities retreated further: the August VIX® future fell from 20.10 to 17.96 (a move of -2.14), and the VStoxx® future from 19.25 to 17.85 (-1.40).
This environment remained difficult for volatility strategies, with realised volatility—particularly in the US—continuing to decline. However, single-stock earnings season offered a silver lining, enabling well-positioned dispersion trades to outperform following a challenging period in May and June. The market saw some considerable activity in other volatility-driven strategies, capitalising on intraday market swings and pronounced FX moves related to trade news.
Equity Strategies
The Subsea 7 and Saipem merger concluded with improved terms for Subsea shareholders, who saw a benefit of around 2%.
Italian banking consolidation advanced: BPER raised its offer for Banca Popolare di Sondrio by 8.5% and successfully completed the acquisition, while UniCredit withdrew its bid for Banco BPM in response to stricter regulatory requirements. Meanwhile, BMPS continues to pursue Mediobanca, itself eyeing Banca Generali, highlighting ongoing sector dynamism.
Competitive dealmaking gained momentum. Spectris faced a higher counter-offer from KKR after an initial bid from Advent. In July, Advent responded by topping KKR’s offer by 2.5%, with further developments expected soon.
In the US, several notable long-running deals closed: Synopsys’ acquisition of Ansys gained crucial Chinese regulatory approval, and Hess paved the way for Chevron’s takeover following a favourable arbitration with Exxon.
In France, corporate governance developments at Vivendi captured attention. The Paris Court of Appeals found that Bolloré SE controlled Vivendi at the time of its spin-off, a ruling now under appeal. Following this, the AMF has decided that Bolloré SE must initiate a tender offer within six months should the initial finding be upheld, using a multi-criteria pricing method. While Bolloré SE appeals, anticipation of a possible offer buoyed Vivendi’s stock and narrowed its NAV discount.
Outlook
As markets balance falling volatility with new catalysts in both corporate and macro environments, we remain attentive to evolving deal flows and volatility dynamics as we move into the heart of earnings season.
Risk Warning
The views and opinions expressed are the views of Boussard & Gavaudan and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All material(s) have been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.
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